(August 2008)

16.135 Appointment of committee – official receiver as liquidator/trustee

Where the official receiver is liquidator/trustee, a liquidation or creditors’ committee is not required or able to act, and its functions vest in the Secretary of State [Note 1] [Note 2]. When no committee has been formed and the liquidator/trustee is an insolvency practitioner, the functions of a committee vest in the Secretary of State [Note 3] [Note 4]. Where the Secretary of State is required to carry out the functions of a liquidation or creditors’ committee, delegated authority has been given by the Inspector General to appropriate members of staff in Technical Section and Insolvency Practitioner Unit to exercise the committee’s functions [Note 5] [Note 6].


16.136 Appointment of committee – meeting of creditors appointment

When a resolution has been passed for the appointment of an insolvency practitioner as liquidator or trustee, the appointment of a committee may also be considered by the meeting [Note 7] [Note 8].

If a meeting is constituted only by the chairman holding proxies, a resolution appointing a committee should only be passed on the basis of instructions in the proxies [Note 9].

The chairman of the meeting may properly use any proxies, which are held to vote for or against the persons nominated for membership of the committee, although he/she should only intervene in this way in exceptional circumstances (e.g. a committee consisting substantially of creditors who are associates of the bankrupt or directors) [Note 10] [Note 11].

If the nomination of a liquidator or trustee at a meeting is ineffective (e.g. because he/she refuses to act), any resolutions for the appointment of committee members will still be effective if an insolvency practitioner is subsequently appointed by the Secretary of State [Note 1] [Note 12].


16.137 Appointment of committee – Secretary of State appointment

No resolution should be accepted for the appointment of a liquidation or creditors’ committee where the case is to remain with the official receiver as liquidator or trustee, unless the official receiver intends to apply to the Secretary of State for a liquidator or trustee to be appointed [Note 1] [Note 12].

The chairman may wish to explain to the creditors that if they wish to nominate a committee, in anticipation of a Secretary of State appointment, they may do so. This will save the insolvency practitioner, when appointed, having to call a further meeting should they or the creditors want a committee [Note 13] [Note 14]. In these circumstances, the official receiver should not take further steps to establish the committee, pending an appointment by the Secretary of State.


16.138 Committee – number of members

A liquidation or creditors’ committee must be formed of between three and five members, it is better to elect either three or five, rather than four, so as to avoid the risk of deadlocks in voting by the committee [Note 15] [Note 16].


16.139 Committee member – insolvent authorised deposit taker

A representative of the Financial Services Authority can exercise a right (under section 371(4)(b) of the Financial Services and Markets Act 2000) to be a member of a liquidation committee. Additionally, a representative of the scheme manager can exercise a right (under section 215(4) of the Financial Services and Markets Act 2000) to be a member of a liquidation committee.

Where he/she does so, they must be regarded as a creditor member, in addition to the normally required minimum of three other members of the committee [Note 17]. (See Part 9 for further information regarding where the insolvent is an authorised deposit taker).


16.140 Committee member – eligibility of nominees

The chairman should, prior to allowing the resolution for the appointment of the members of the creditors’ committee to be voted upon, confirm that the persons nominated are eligible to act. A creditor is eligible where their debt is not fully secured, they have lodged a proof of debt and the proof has not been wholly disallowed for voting purposes, or wholly rejected for dividend purposes [Note 18] [Note 19].

Committee members should also agree to act as such, although in some circumstances it may not be possible to verify this on the day of the meeting [Note 20] [Note 21]. Where the creditors nominated are not present, and it is not known whether they will act, the meeting should, as a matter of best practice, be asked to nominate substitutes in the event of the persons first nominated declining to act.

Unless a liquidating company is solvent, nominations for contributory members of a liquidation committee must not be accepted [Note 22].


16.141 Committee member – suitability of nominees

The chairman may suggest to the meeting that of the persons eligible to serve on the committee, those who possess the largest claims may be the most appropriate to be elected. There are exceptions to this general rule, it is for instance, usually undesirable that family creditors or directors, should serve on the committee. Similar objections may apply to creditors who are in partnership with the liquidator or trustee, (or employed by them) in addition to those who have interests adverse to those of the general body of creditors, or whose proofs, or claims, are likely to be subjected to further investigation. It is important that the position of the members of the committee should be such as to enable them to exercise an independent and impartial view of matters arising in the administration on which their views may be sought.


16.142 Committee member – company

(Amended July 2010)

A company may be a member of a creditors’ committee, but cannot act as such, other than via a representative with a letter of authority [Note 23] [Note 24]. The representative cannot be any of the following [Note 25] [Note 26]:

  1. another member of the committee;
  2. a person who is at the same time representing another committee member;
  3. a company;
  4. an undischarged bankrupt;
  5. a disqualified director; or
  6. a person subject to a bankruptcy restrictions order (including an interim order), bankruptcy restrictions undertaking, a debt relief restrictions order (including an interim order), or a debt relief restrictions undertaking.

Nominations will be for the creditors themselves to be appointed as members of the committee, an appointed creditor may however appoint someone to represent them at future meetings [Note 27] [Note 28]. Normally a proxy-holder will be able to accept appointment for the creditor he represents and will be authorised to act at a committee meeting, if the insolvency practitioner wishes to call one, immediately after the first meetings have been held [Note 29] [Note 30] [Note 31] [Note 32].


16.143 Notification to insolvency practitioner

The establishment of the committee and the formalities associated with it are matters entirely for the liquidator or trustee, and the official receiver should not become involved. He/she should, however, inform the practitioner appointed (if he/she is not present or represented at the meeting) by telephone of the details of the nominations for the committee and subsequently confirm this in writing [Note 33] [Note 34].


[Back to Part 7 – Voting] [On to Part 9 – Where the insolvent is an authorised deposit taker]